Structural reforms need for sustained China growth
Singapore advice focuses on avoiding pitfalls in shift to next level of development
China must tackle institutional reform if it is to maintain dynamic economic growth in the long term and avoid falling into a so-called middle income trap of rising costs and falling competitiveness, Singapore's deputy prime minister and finance minister, Tharman Shanmugaratnam said.
"Moving up from low income to middle income is an easier process than moving up from middle income to upper middle income or higher income. The second stage - moving beyond middle income - is really about institutional reform," Tharman told a conference of investment experts in the city state yesterday.
Professor John Wong of the East Asian Institute, a top-level, China-focused think-tank at the National University of Singapore, echoed Tharman, saying that China would have to restructure its economy and get out of labour-intensive industries in order to maintain competitiveness.
Singapore is often cited as a prime example of how to successfully navigate the risks of the middle income trap to make the transition from low to high-income status.
The comments, made at the CFA Institute annual conference in Singapore, come days after news that President Xi Jinping had taken charge of drawing up ambitious reform plans to revitalise an economy struggling to rebound from 2012's slowdown, which saw the mainland deliver its weakest growth in 13 years.
The 7.8 per cent growth last year is the envy of the world's major economies, but fell far short of the average 10.5 per cent achieved annually between 2001 and 2011.
Xi had decided on reform rather than stimulus to boost the economy and had set up a top-level team to deliver a plan at a meeting of the Communist Party later this year, Reuters reported last week.
Beijing's broad to-do list of reforms was laid out in the China 2030 report last year produced jointly by the World Bank and the Development Research Centre, the think-tank of the State Council, China's cabinet.
Implementing structural reforms to strengthen the economy was top of the list of six priority areas.
Getting the reform mix right was crucial to international investors, said Ng Kok Song, former chief investment officer of the Government of Singapore Investment Corp, one of the world's largest sovereign wealth funds, with US$247.5 billion under management, according to the Sovereign Wealth Fund Institute.
"China has become a change factor in the global economy over the past 20 years," said Ng, who remains an adviser to GIC.
"The question is whether China will continue to be the significant change factor for the global economy and what the implications are for us as investors."